Greek conservatives hope to seal coalition deal

ATHENS (Reuters) - Greek conservatives hope to form a coalition government on Wednesday which must persuade mistrustful foreign lenders to allow more leeway in pushing through a deeply unpopular austerity program.

Exasperated with Greece's repeated failure to honor its promises on budget cuts and reform, euro zone officials have nevertheless begun to accept the program may be impossible to implement without changes, as the country is already off track and its economy is sliding deeper into recession.

One senior euro zone official said trying to enforce the original terms of the 130 billion euro bailout package from the European Union and the International Monetary Fund would mean "signing off on an illusion".

The bailout has split Greek society, and in an election on Sunday the conservative New Democracy party that broadly supports the deal only narrowly beat a radical left-wing bloc that wants to tear it up.

After two days of negotiations, agreement to form a New Democracy-led government backed by the PASOK Socialists and the smaller Democratic Left party appeared to be near.

"A government must be formed as soon as possible," Evangelos Venizelos, head of the PASOK party, said on Tuesday. "As we stand now, it could be formed by midday tomorrow."

The state-run Athens News Agency reported that New Democracy leader Antonis Samaras would meet Venizelos at 0900 GMT on Wednesday and Democratic Left leader Fotis Kouvelis at 1000 GMT.

PASOK is expected to join a coalition, but has previously raised the possibility of a looser alliance such as supporting a minority government.

New Democracy took a 50-seat bonus under Greek electoral law for coming first, and a New Democracy-PASOK alliance would have 162 seats, a majority in the 300-seat parliament. Adding the Democratic Left would give it 179 seats.

Samaras was given a three-day presidential mandate on Monday to form a government. Should his mandate expire, the baton would pass to the party that came second, the SYRIZA party.

SYRIZA leader Alexis Tsipras, who horrified European leaders and financial markets by promising to rip up the bailout deal keeping Greece afloat, told Reuters that the pro-bailout coalition being formed would not last long.

"What SYRIZA has been saying all along is that the bailout plan is not viable and cannot go on," Tsipras told Reuters in his first interview since the election. "Now they all recognize this."

The bailout program comes at the price of deep spending and wage cuts that have sent unemployment to a record high, deepened a recession that is now in its fifth year and provoked violent protests.

But with Greece running rapidly out of money, the new government's first mission will be to convince officials from the so-called "troika" of European Union, European Central Bank and International Monetary Fund inspectors to sign off on the next installment of aid from the bailout.

Still, in a sign that fears that Greece could be forced out of the euro had receded sharply, banks reported that some deposits withdrawn in the run-up to the vote appeared to be trickling back.

"We've seen people bringing back cash that they had withdrawn and mostly taken home," said a Greek banker at a mid-sized foreign-owned lender. "We expect this trend to pick up in the coming days."

(Writing by Deepa Babington; editing by David Stamp)